Government bails out “Private” Finance Initiative

The old joke that consultants borrow your watch and then charge you if you want to be told the time has finally come true. The UK Treasury has announced it will step in to provide the finance for £8bn worth of PFI (private finance initiative) deals this year, as other sources of finance dry up (see Nick Timmins in the FT today).

This will leave the government in the ludicrous position of providing the finance to private companies who will use it to build things that they then rent back to the public sector! The whole point of PFI – that of so-called ‘risk transfer’ from the public to the private sector – will disappear in this arrangement with the Government taking all the risk and the private sector getting the rewards.

The decision highlights a fundamental ideological aspect of the New Labour government – despite all the extra effort put into the public sector, at heart New Labour ministers still believe ‘private good, public bad’. They resisted nationalisation of Northern Rock when it was blindingly obvious it had to be done. They continue to resist nationalising the other banks that are, in effect, already publicly owned. They will not intervene to restructure the finance sector into something which is more viable, secure and competitive long-term because they fear being accused of ‘state planning’. They will not intervene to secure a proper optical digital fibre network for Britain, for the same reasons.

This is not – as ministers frequently claim – pragmatism. Even many capitalists and right-wing free marketers are currently calling for these sorts of policies. I was surprised by the vehemence with which Roger Bootle, probably the UK’s leading monetary economist and fellow witness to the Treasury Select Committee, argued in December that the government needed to take a much more interventionist stance to the banking crisis and not simply rely on subsidies and hand-outs.

So wedded are the government to market solutions that we now have the ludicrous spectacle of them handing over the watch, and humbly asking if they can pay to be told the time.